The New York Times - USA (2020-06-29)

B2 N THE NEW YORK TIMES, MONDAY, JUNE 29, 2020

HOUSTON — Chesapeake Energy, a
pioneer in extracting natural gas
from shale rock across the coun-
try, filed for bankruptcy protec-
tion on Sunday, unable to over-
come a mountain of debt that be-
came unsustainable after a dec-
ade of stubbornly low gas prices.
The company helped convert
the United States from a natural
gas importer into a major export-
er under the swashbuckling lead-
ership of Aubrey McClendon, a
company co-founder and former
chief executive.
But Mr. McClendon over-
extended the company and
amassed over $20 billion in debt
before he was forced out in 2013,
and the company, based in Okla-
homa City, never fully recovered.
Chesapeake Energy lost $8.3
billion in the first quarter of this
year, and had just $82 million in
cash at the end of March. With
$9.5 billion in debt at the end of
last year, it has bond payments of
$192 million due in August.
In a statement, Chesapeake
said it was filing for Chapter 11
protection to facilitate a complete
restructuring. As part of its agree-
ment with lenders, the company
said it had secured $925 million in
financing under a revolving credit
facility, and eliminated roughly $7
billion of debt. It also secured a
$600 million future commitment
of new equity.
“We are fundamentally reset-
ting Chesapeake’s capital struc-
ture and business to address our
legacy financial weaknesses,”
said Doug Lawler, Chesapeake’s
president and chief executive.
“Chesapeake will be uniquely po-
sitioned to emerge from the Chap-
ter 11 process as a stronger and
more competitive enterprise.”
Chesapeake has 1,900 employ-
ees.
It is the latest heavily indebted

oil and gas business to seek bankruptcy protection since the coronavirus pandemic crippled demand for energy. Under its former chief executive, Mr. McClendon, the company drilled across Texas, Oklahoma, Ohio, Wyoming and Louisiana. Mr. McClendon was audacious as he aggressively outbid competi- tors on land leases and explored widely in the early 2000s, al- though he also drilled many wells that disappointed investors. By 2011, he and others who followed in his footsteps had produced a glut of natural gas that sent Ches- apeake and other companies to the brink of collapse. To find a use for all that natural gas, Mr. McClendon went on a campaign to promote compressed natural gas vehicles, but the effort went nowhere. He tried to make alliances with environmentalists, arguing that gas could replace coal and be a bridge fuel to a cleaner energy future. Before his ouster in 2013, Mr.

McClendon built a luxurious campus for the company in Oklahoma City, complete with a community garden, deluxe dining facilities and two parking garages that alone cost $100 million to build. He acquired trophy assets like the Oklahoma City Thunder basketball team, interests in a French winery and a $12 million antique map collection. The basketball team still plays in Chesapeake En- ergy Arena, which was a symbol of Oklahoma City’s revival as a gas hub. From 2010 to 2013, the company spent about $30 billion more on leasing and drilling than it made from its production. Mr. McClendon was also known to cut corners, which got him and his company in trouble. Chesa- peake executives complained of a lack of a formal budgeting process or employee performance man- agement system. The company borrowed money to fund charities and real estate projects. Mr. McClendon was charged in

2016 with conspiring to suppress prices for oil and natural gas leases. The indictment said he had orchestrated a conspiracy in which two oil and gas companies colluded not to bid against each other for several leases in north- western Oklahoma from late 2007 to early 2012. A day after the indictment, Mr. McClendon, at age 56, died in a crash in Oklahoma City after his car hit a bridge at high speed. On news of Mr. McClendon’s death, the oil tycoon T. Boone Pickens, who died in 2019, said, “No individual is without flaws, but his im- pact on American energy will be long lasting.” When Mr. Lawler, a veteran Anadarko executive, took over the company in 2013, he called his new job “the biggest challenge in the entire industry.” Mr. Lawler had been trying to turn around the company by pro- ducing more oil and selling gas assets. But the shale drilling boom of recent years has unleashed more crude oil than the world needs, sending prices lower. The coronavirus pandemic and a decision by Saudi Arabia and Russia this year to ramp up production were the latest blows. The economic downturn also has cut demand for natural gas in the United States, and slashed ex- ports to foreign markets. There had been rumors of a bankruptcy for months. Roughly 20 American oil and gas producers have already filed for bankruptcy this year, including Ultra Petroleum and Whiting Pe- troleum. A total of 227 producers have filed for bankruptcy in the five years that ended May 31, in- volving more than $134 billion in aggregate debt, according to the Haynes and Boone Oil Patch Bankruptcy Monitor.

Chesapeake Files for Bankruptcy

Chesapeake Energy built a luxurious campus in Oklahoma City before it ran into financial and legal trouble under its former chief executive.

STEVE SISNEY/REUTERS

By CLIFFORD KRAUSS

FINANCE | TECHNOLOGY

As a financial adviser, Elyse Fos-
ter helps clients navigate tricky
personal issues around managing
their money. But the coronavirus
has brought an extra layer of com-
plexity — especially where family
is concerned.
One client lent a newly unem-
ployed sibling $10,000. But that
good intention went awry quickly
when the client later learned that
his son needed money, too. “The
son resented the father for not re-
alizing” it, said Ms. Foster, chief
executive of Harbor Wealth Man-
agement in Boulder, Colo.
Other gainfully employed cli-
ents who have relatives in sudden
need of financial help are also con-
fronting minefields over whether
and how to lend.
“We’ve had parents who are
maybe considering making loans
to one child, and another child will
say, ‘So he’s getting rewarded for
spending too much, or not work-
ing, or making bad decisions?’ ”
Ms. Foster said. “We’ve seen fam-
ilies almost torn apart since the
pandemic.”
As the coronavirus continues to
dismantle livelihoods across the
country, advisers can expect fam-
ily financial dramas to keep sur-
facing, according to a new survey
from Commonwealth, a nonprofit
group that researches financial
opportunities and security for the
financially vulnerable.
The survey, conducted in late
April, collected responses from
944 people throughout the United
States with household incomes
under $75,000. Among them, 16
percent of those who had been
permanently laid off reported re-
ceiving more financial support
from family or friends than they
had before Feb. 1.
The rules for how much to lend
and when, if ever, to expect repay-
ment are being written in real
time, like so much of life during
the pandemic. “Twenty percent of
people will call and say, ‘Can I af-
ford to do this?’ ” Ms. Foster said.
“But the other 80 percent are very
determined and have already
committed to making a loan. So
we’re immediately thrown into
‘Where are you in the process, and
how is the loan going to be paid
back?’ ”
Worries that relatives will be
more generous than they can af-
ford to be may not be misplaced.
“It depends on how close the
family members are, but some
won’t bat an eye to lend more than
they should,” said William Car-
rington, an adviser in Fort Lau-
derdale, Fla., who works with U.S.
Foreign Service workers.
For example, when one of his
moderate-income clients was
asked to lend hundreds of dollars
to a sibling in her 40s who had
been laid off from a blue-collar job
because of the virus, the response
was an instant yes.
“There was a real expectation
on the part of the sibling, like, ‘You
have a steady job, so you kind of
owe me,’ ” Mr. Carrington said. His
client, also in her 40s, had been
saving to send her children to col-

lege. But she immediately set that goal aside. Mr. Carrington did not try to dissuade her. “As a certified financial planner, I’m not allowed to convince,” he said. “You just ex- plain the consequences.” But like Ms. Foster, he would have pre- ferred that his client tell her relative the ramifications of her loan in specific detail, to avoid misun- derstandings. Relatives “should make it known what they gave, and the ef- fect on them of what they gave,” Ms. Foster said. “Let’s say I have six to nine months of emergency reserve money. If I gave you three months of it, I could tell you: ‘This is what I saved, and this is why I need it back. I could be in trouble without it.’ That way the recipient understands this isn’t funny money.” Mr. Carrington recommends a tight cap on dollar amounts. “If you get a call that so-and-so can’t make rent this month, and you have $35,000 in emergency funds and the rent is $2,000, you could draw a red line where you say, ‘I

can’t get below $25,000 in emergency funds, so I can afford to help you another four months if you need it, but that’s as far as I can go,’ ” he said. “If you have that kind of conversation, you’re not in the position where you get a call one day and you have to abruptly say, ‘I can’t help anymore.’ ” Repayment plans should also be laid out before money leaves a bank account, financial profes- sionals say. But even then, lenders should prepare for lapses. “In this situation, with Covid specifically, reflecting on would you be OK if you never got this money back is probably a good idea,” said Mariel Beasley, co- founder of the Common Cents Lab, a financial behavior research lab at Duke University. “People tend to be over-optimistic. They plan a best-case scenario, where they say, ‘Great, they’ll be back to work in two months and they’ll be able to pay me back 50 bucks a month.’ They forget unexpected expenses and setbacks can hap- pen.” They may also forget that re- sentments can pile up alongside them. Mr. Carrington has seen clients whose relatives begrudge them their savings for a post-virus vacation. “They’ll say, ‘Why can’t you cancel that?’ ” he said. “When that happens, mostly you want to calm them down and say, ‘I’m not going to let you starve.’ ” Self-scrutiny, Ms. Foster said, can go a long way toward preserv- ing relationships tested by newly rocky financial ground. “Before you make the loan, think about what your intent is,” she said. “Is it a gift, or is it a loan?” If it’s a loan, she advises writing a formal note about the terms and filing it with a third party. “And then let it go. Don’t bring it up at holiday dinners. Don’t give reminders. If you can’t

do that, we suggest you not make the loan at all.” A sliding scale of expectations may be key to keeping the peace, she added. When a client recently asked her to transfer $10,000 to his stepchildren, who had agreed to a loan with interest attached, he told her that he didn’t expect the stepchildren to comply. “He said he thinks he isn’t ever going to get the money back,” she said. “And I bet he’s right. With fa- milial lending, oftentimes it does- n’t.” Still, Ms. Beasley said people financially hobbled by the virus should borrow from family if they could. “If the person lending is going to be OK if that money doesn’t get paid back, I say by all means, that is a better loan option for people than going through a formal financial institution, which won’t pro- vide as much flexibility,” she said. As the Covid recession deepens and Americans turn to whatever resources they can tap to pay bills, they may find that relatives’ flexibility is cushioned with greater compassion. “What’s unique about this financial crisis is its cause — a virus beyond any individual’s control,” said Melissa Gopnik, senior vice president at Commonwealth, the organization that found the uptick in borrowing among laid-off workers. “It appears to be bringing people around to the idea that ev- eryone has a role to play in people’s financial challenges, including the government, employers and financial institutions.” Despite what Mr. Carrington predicted would be years of hurt feelings within families, especially if one relative is perceived to have more money than the rest, Ms. Gopnik sees a silver lining. “I think this crisis has brought us to a moment of collective empathy,” she said.

Your Relative Is Asking for Money. Now What?

Before lending to a loved one, take a moment to reflect on whether you really need to be paid back, says Mariel Beasley, a founder of the Common Cents Lab, a financial behavior research lab at Duke University.

JEREMY M. LANGE FOR THE NEW YORK TIMES

By TAMMY LaGORCE

■More than a dozen advisers affiliated with the XY Planning Network are offer- ing pro bono services to people struggling during the pandemic. ■Free financial guidance is available to underserved populations through the Fi- nancial Planning Associa- tion. ■The nonprofit National Foundation for Credit Coun- seling offers free initial budget counseling sessions online or on the phone.

Getting Help

established high-tech companies, have units within them that do this kind of work, respond in as close to real time as they can to online criticism of the company, to take steps to protect the brand,” Andrew Lelling, U.S. attorney for the District of Massachusetts, said. But, he added, “I can tell you that at least internally, we have never seen a company that did something like this before.” Prosecutors charged the six eBay employees with conspiracy to commit cyberstalking and wit- ness tampering, but noted that eBay’s campaign against the hus- band-and-wife publishing duo was ordered up by senior executives. “I want her DONE,” Steven Wymer, eBay’s former communications chief, told James Baugh, the company’s former senior di- rector of safety and security. “She is a biased troll who needs to get BURNED DOWN.” In case there was any confu- sion, Mr. Wymer added, “I want to see ashes.” Contacted this past week, Mr. Wymer, who was not one of the employees charged in the indictment, said, “I would never con- done or participate in any such ac- tivity.” He added that he was con- strained in what he could say beyond that. EBay said in a statement that “neither the company nor any current eBay employee was indicted.” Private security teams have long been part of corporate Amer- ica, among them insurers’ fraud investigators and the “seed police,” as farmers call investigators for the agricultural giant Mon- santo who secretly videotape farmers, infiltrate community meetings and recruit informants in their hunt for patent infringe- ment. These private detective teams, which typically operate under fraud divisions, are projected to grow into a $23.3 billion global industry this year from a $17.3 billion industry in 2018, according to Grand View Research. Few industries have embraced the notion of private security as much as tech. One Silicon Valley investigator, who spoke on the condition of anonymity because of nondisclosure agreements, said a start-up executive had paid his firm $50,000 over one weekend to root out employees he believed were plotting his ouster. (They

were.) The total tab for the work was as much as half a million dollars. But as with the eBay team, these private security groups are sometimes accused of crossing legal lines. In 2006, for example, investigators hired by Hewlett-Packard were caught riffling through reporters’ trash cans and phone records. About a year ago, Tesla made headlines for its aggressive efforts to root out and punish an employee, Martin Tripp, who had tipped reporters off to waste at the carmaker’s Nevada factory. According to police reports and whistle-blower complaints filed by two Tesla security operators with the Securities and Exchange Commission, Tesla was accused of hacking into Mr. Tripp’s phone, having him followed by private investigators and passing along an anonymous, false tip to the local authorities that Mr. Tripp planned to shoot up Tesla’s factory. “Tesla’s investigators were tail- ing him, showing up at weird places, and completely spooked him,” Robert Mitchell, Mr. Tripp’s lawyer, said in an interview. Mr. Tripp has since moved to Hungary out of fears for his family’s safety. Tesla did not respond to re- quests for comment, but the company has sued Mr. Tripp for $167 million for what it has said was data theft. Mr. Tripp has filed a countersuit for defamation and unspecified damages. Both suits are ongoing. When working for tech companies, private investigators have advantages over traditional law enforcement: They have access to more data, deal with far less red tape, and they have the ability to quickly cross jurisdictions and borders. Justin Zeefe, a former intelligence officer who is now the president of Nisos, a security firm in Virginia, said his company has worked for tech companies on a wide range of cases. On one occa- sion, they learned that a company’s overseas suppliers had ties to foreign intelligence agencies. Another client asked his firm to determine whether an acquisition target had been infiltrated by for-

eign hackers. Yet another hired Nisos to determine the source of multiple cyberattacks. It turned out to be the work of a competitor that had intercepted the company’s Wi-Fi from an apartment rented across the street. Joe Sullivan, the chief informa- tion security officer at the internet company Cloudflare, still remem- bers the frantic call he received from a colleague while working as a security executive at Facebook several years ago. She had met a man on Match- .com who claimed to work in con- struction in San Jose, Calif., and he had convinced her to send him a topless photo. He was threatening to email the photo to the entire company if she did not pay him $10,000. With her permission, Mr. Sulli- van’s team took over her account and redirected her extortionist to a payment scheme that they knew would reveal his identity. They determined he was a former Google intern living in Nigeria. Mr. Sullivan’s team hired Ni- gerian contractors to confront him. He confessed and surren- dered access to his computer and online accounts, which showed he was extorting female executives across Silicon Valley. Investiga- tors were able to destroy the nude photos and warned his victims not to pay. It could have taken years, Mr. Sullivan said, for law enforcement to identify the extortionist and even longer for Nigerian authorities to do something about it. Mr. Sullivan learned that lesson as a security executive at eBay in

Romanian fraudsters were
running rampant on eBay, and Ro-
manian authorities refused to ad-
dress the problem. It was only af-
ter Mr. Sullivan’s team shut off
eBay access to all of Romania —
with a message blaming eBay’s
shuttering on Romanian law en-
forcement’s refusal to pursue on-
line criminals — that Romanian
police took action.
But Mr. Sullivan’s experience
shows how easily tech’s ag-
gressive security tactics can run
into trouble. In 2016, two hackers
approached Uber with security
flaws that allowed them to obtain
login credentials for more than 57
million riders and drivers, and the
pair demanded a $100,000 payout
in return.
Mr. Sullivan, who had recently
joined Uber from Facebook, ran
the same playbook he used in the
Nigerian extortion case, pushing
the hackers into a payment
scheme to deduce their identities.
Uber’s security team eventually
confronted the men at their homes
with nondisclosure agreements
and asked them to destroy the
data.
The plan, which was approved
by Uber’s chief executive at the
time, Travis Kalanick, was ini-
tially celebrated. But after Uber
hired a new chief executive, Mr.
Sullivan was fired and accused of
covering up a data breach.
Uber later settled an investiga-
tion of the breach and the compa-
ny’s behavior surrounding the in-
cident for $148 million. The two
hackers pleaded guilty last Octo-
ber to charges of computer hack-
ing and extortion.

When Tech’s Security

Oversteps the Bounds

FROM FIRST BUSINESS PAGE

Steven Wymer, eBay’s former communications chief.

MIKE COPPOLA/GETTY IMAGES

Justin Zeefe, the president of Nisos, a security firm in Virginia.

EMMA HOWELLS FOR THE NEW YORK TIMES

Natasha Singer and Sheera Frenkel contributed reporting.

Silicon Valley’s focus

on reputation can

lead some companies’

units astray.

The New York Times - USA (2020-06-29)

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